These companies have predictable businesses while offering potential value
Summary
- PGT Innovations, EMCOR Group
EME
, Lockheed Martin
LMT
, UPS and Snap-on
SNA
are trading at a discount.
Market indexes were up on Wednesday morning following higher-than-expected inflation data and the announcement of Exxon Mobil Corp.’s (XOM, Financial) $59.5 billion merger with Pioneer Natural Resources
PXD
Co. (PXD, Financial).
The producer price index recorded a 0.50% increase for September, which was greater than the 0.30% rise economists expected. However, it still represented a slowdown from the 0.70% increase in August.
As such, the Dow Jones Industrial Average climbed 0.10%, putting it on track for its fourth consecutive day of gains. The S&P 500 rose less than 0.10% and the Nasdaq Composite gained 0.30%.
Further, the overall industrials sector has gained about 6.71% year to date.
As a result of these developments, investors may be interested in finding opportunities among undervalued industrial stocks that have predictable performances.
The Undervalued Predictable Screener, a Premium GuruFocus feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.
According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies’ predictability rates are then determined based on their historical performance over the past decade.
The screener also looks for companies with predictability ranks of at least four out of five stars.
Based on these criteria, a number of companies qualified for the screener as of Oct. 11, including PGT Innovations Inc. (PGTI, Financial), EMCOR Group Inc. (EME, Financial), Lockheed Martin Corp. (LMT, Financial), United Parcel Service Inc. (UPS, Financial) and Snap-on Inc. (SNA, Financial).
PGT Innovations
Shares of PGT Innovations (PGTI, Financial) are currently trading 49% below the DCF value of $62 and 19% below the discounted earnings value of $39.
The Venice, Florida-based company, which manufactures a variety of window and door products, has a $1.80 billion market cap; its shares were trading around $31.24 on Wednesday with a price-earnings ratio of 17.85, a price-book ratio of 2.81 and a price-sales ratio of 1.06.
The GF Value Line
VALU
suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 95 out of 100, the GF Score indicates the company has high outperformance potential. While it received solid ratings for profitability, growth and momentum, the financial strength and value ranks are more moderate.
PGT Innovations also has a four-star predictability rank. According to GuruFocus research, companies with this rank return an average of 9.80% annually over a 10-year period.
EMCOR Group
EMCOR Group (EME, Financial) shares are trading 40% below the DCF value of $348, but 10% above the discounted earnings value of $189.
The company headquartered in Norwalk, Connecticut, which provides electrical and mechanical construction and facilities services, has a market cap of $9.87 billion; its shares traded around $207.91 on Wednesday with a price-earnings ratio of 20.71, a price-book ratio of 4.64 and a price-sales ratio of 0.85.
According to the GF Value Line, the stock is modestly overvalued currently.
On the back of solid ratings for growth, profitability and financial strength, a moderate momentum rank and low value rank, the company’s GF Score is 85. As such, EMCOR has good outperformance potential.
The company also has a 4.5-star predictability rank. GuruFocus says companies with this rank return an average of 10.60% annually.
Lockheed Martin
Lockheed Martin (LMT, Financial) is trading 34% below the DCF value of $666 and 16% below the discounted earnings value of $521.
The Bethesda, Maryland-based aerospace and defense company, which produces high-end fighter jets and other weapons and aircraft, has a $110.71 billion market cap; its shares were trading around $436.71 on Wednesday with a price-earnings ratio of 15.97, a price-book ratio of 11.86 and a price-sales ratio of 1.68.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 88 implies the company has good outperformance potential, driven by high growth and profitability ratings and more moderate value, momentum and financial strength ranks.
Lockheed Martin also has a four-star predictability rank.
United Parcel Service
Shares of United Parcel Service (UPS, Financial) are trading 31% below the DCF value of $224 and 44% below the discounted earnings value of $277.
Headquartered in Atlanta, the shipping and supply chain management company has a market cap of $132.39 billion; its shares traded around $155.05 on Wednesday with a price-earnings ratio of 13.45, a price-book ratio of 6.62 and a price-sales ratio of 1.40.
The GF Value Line suggests the stock is modestly undervalued currently.
The GF Score of 94 means UPS has high outperformance potential due to high ratings for four of the criteria as well as a more moderate momentum rank.
UPS has a four-star predictability rank.
Snap-on
Snap-on’s (SNA, Financial) stock is trading 13% below its DCF Value of $301 and 19% below its discounted earnings value of $321.
The Kenosha, Wisconsin-based company, which manufactures tools for the automotive, aviation, aerospace, collision, construction and agriculture markets, has a $13.83 billion market cap; its shares were trading around $260.97 on Wednesday with a price-earnings ratio of 14.46, a price-book ratio of 2.90 and a price-sales ratio of 3.07.
According to the GF Value Line, the stock is currently fairly valued.
The company has good outperformance potential with a GF Score of 90 due to solid ratings for four of the criteria and a low value rank.
The company is also supported by a five-star predictability rank. GuruFocus found companies with this rank return an average of 12.10% annually.
Additional opportunities
Other companies that qualified for the screener were Union Pacific
UNP
Corp. (UNP, Financial), Canadian National Railway Co. (CNI, Financial), Cintas
CTAS
Corp. (CTAS, Financial), FedEx
FDX
Corp. (FDX, Financial), Copart
CPRT
Inc. (CPRT, Financial), Old Dominion Freight Line
ODFL
Inc. (ODFL, Financial) and United Rentals
URI
Inc. (URI, Financial).
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
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